Two Great DemocraciesBy DAVID C. MULFORD
July 18, 2005
U.S.-India relations are at an all-time high as President Bush welcomes Prime Minister Manmohan Singh to Washington today. Our two great pluralistic democracies are now positioned for a partnership that will be crucial in shaping the international landscape of the 21st century. Secretary of State Condoleezza Rice has recently said, "the United States is serious about its vision for the U.S.-India relationship," and welcomes India's ambition to become a world power.
Secretary Rice's first visit to India in March marked three important areas for expansion of the U.S.-India strategic partnership: economic policies; a formal dialogue on India's energy requirements, including civil nuclear; and strategic and military issues. Our respective private sectors will play a key role in all these areas.
The U.S. commitment to develop deep economic and commercial ties with India has never been stronger. U.S. exports to India are up by 50% and India's by 15% for the first quarter of 2005. The recent Open Skies Agreement with India is already increasing air traffic, and India is finalizing a large order for Boeing aircraft. Our revitalized Economic Dialogue focuses on finance, trade, commerce, energy and the environment.
Private enterprise and free markets are key to long-term progress. Effective public-private cooperation will address economic growth and development challenges far more effectively than micromanagement by governments. Governments after all are not the creators of wealth, the makers of markets, the wellspring of human energy and ingenuity. These are the productive forces of individuals, which governments must make special efforts to promote. Business activity and people-to-people engagement will be critical to the transformation of U.S.-India relations.
Nevertheless, governments play an important role in setting the ground rules for much business activity. Prime Minister Singh has put economic reform at the top of India's agenda. I recognize that these reforms must be politically viable to survive, yet there are a number of mutually beneficial strategic reforms that could contribute significantly to India's progress and encourage American business to invest in India's future.
The most prominent challenge is world-class infrastructure, which India must provide as a platform for higher sustained growth to achieve its vision of becoming a world power. Infrastructure is now a national priority, but bringing together federal and state authorities and public and private players is just beginning, and remains a tall order. Political stakes are high because those leaders who provide infrastructure to India's rural and urban millions will gain lasting popular support. Infrastructure challenges are complicated by the fact that India's federal and state fiscal deficits severely restrict necessary finances for development. India must invigorate private sources to finance long-term project development.
This means that the regulatory environment and attitudes towards private investment in infrastructure at the federal and state level must change. Investors need greater confidence to undertake infrastructure investments, especially in the power sector, where our new Energy Dialogue promotes increased trade and investment, including in civilian nuclear power.
Liberalization of India's financial markets would have significant positive ripple effects throughout the economy. Chronic budget deficits derive in part from wasteful government subsidies. Developing a truly long-term capital market that taps India's vast private savings must be a key objective, together with fiscal restraint and creative private-sector financial engineering that reduces government's "crowding out" in India's financial markets. Reducing government's dominance in banking is vital to these reforms as is lifting the ceiling on foreign direct investment in insurance and liberalizing India's emerging pension industry, with greater private participation and increased freedom for both foreign and domestic banks to invest in India's rising economy.
Continued progress in intellectual property rights, or IPR, is also helping India attract more U.S. investment in biotechnology and pharmaceuticals. We share a major interest in science and technology, and India is proving to be a world-class player in these fields. As IPR protection improves, U.S. companies will become major investors, contributing capital, top quality science and technology, global management expertise, and new jobs.
Liberalization of India's retail sector is another strategic reform vital to India's future development. Today, India effectively prohibits foreign investment in the retail industry and permits a variety of restrictive practices favoring countless middlemen and preserving internal barriers that raise costs to India's consumers. International giants like Wal-Mart buy billions of dollars of goods in India annually to sell to foreign consumers. Current Indian law prohibits these same companies from selling goods to consumers in India. Likewise, agricultural reform and higher growth may be hampered without commensurate liberalization in retail and related businesses.
Increasingly it is understood in India that much can be gained from bold initiatives that liberalize India's economy and, in turn, generate popular political support. Such reform will improve living standards in ways the average citizen can feel and understand. Political credit will accrue to those in government with the vision to effect such change. Impressive results in the IT and telecom sectors already demonstrate the dynamic of less regulation, free foreign direct investment, freer trade in services, and consumer benefit. Broadening our investment in both directions is firmly in the interests of both our countries.
Finally, we must extend our growing strategic relationship. Cooperation on political issues -- from promotion of democracy abroad to global peace-keeping operations, to combating terrorism and WMD threats -- are at the core of the bilateral relationship. Defense cooperation has reached new levels and military cooperation in the tsunami disaster was unprecedented. A new defense relationship agreement signed recently by Defense Minister Pranab Mukherjee and Secretary of Defense Donald Rumsfeld will guide our defense relations for the next decade in a wide variety of areas, including the enlargement of two-way defense trade, improved interoperability, co-production and greater technology transfer.
Prime Minister Singh's visit to the U.S. will mark the next stage as the world's two largest multicultural democracies reach for new heights in their relationship.Mr. Mulford is the U.S. ambassador to India.